A booming California coffee chain says it knows the key to one of Starbucks’ biggest customer problems

On May 29, Starbucks will hold a racial bias training in 800 US stores. The training is in response to an incident in April at a Philadelphia location, when a white store manager called the police on two black men after one asked to use the restroom.

Racial bias is one of Starbucks' biggest PR headaches right now. On May 17, the chain came under fire again after a barista wrote a racial slur on a Latino customer's cup.

A California coffee chain called Red Bay has curbed racial bias toward customers by hiring people of color in management positions and creating a culture of discussing racial issues, according to founder Keba Konte.

In recent months, Starbucks has been dealing with a public-relations headache that threatens to damage its reputation.

In April, a white store manager called the police on two black men in Philadelphia after one of the men asked to use the restroom. Footage of the arrest went viral, and other customers proceeded to share similar experiences of racism using the hashtag #Starbuckswhileblack. A month later, the company came under fire again, when a barista in California wrote "beaner"— a derogatory term for Mexicans — on a Latino customer's coffee cup. And in late 2017, an Asian customer said a barista wrote "ching" on his cup instead of his name.

While Starbucks struggles with racial bias, another coffee chain says it has found two strategies for curbing racism in its stores: hiring more people of color as managers and creating a culture of openly discussing racial issues.

Starbucks will continue to have racial bias incidents unless it "makes some deep structural changes"

The chain, called Red Bay Coffee, has a staff composed entirely of women, people of color, and the formerly incarcerated.

In 2014, Red Bay was founded by Keba Konte, a black entrepreneur who started his career as a visual artist. The company operates just two locations in Oakland, California. But it plans to open seven more in Philadelphia, Baltimore, Chicago, and the San Francisco Bay Area by 2019.

Alicia Adams, Director of Coffee at Red Bay Coffee Roastery. Red Bay Coffee Konte stresses that building a diverse leadership team was a core part of his company's mission from the start. He says that a similar tactic could work for Starbucks.

"Until Starbucks makes some deep structural changes to reverse its legacy of racial bias — which is also built into American society — they'll continue to have incidents," he told Business Insider. "The only way you can reverse corporate culture is by changing the leadership. That has been my experience."

Konte attributes Red Bay's diverse leadership to the company's success, because it has allowed the company to differentiate itself from competitors.

"The number-one question I get is, 'Specialty coffee is such a crowded field. What makes you different?' There's a competitive advantage to opening up opportunities for folks who have a higher barrier of entry to jobs, like the formerly incarcerated," he said.

He also notes that in the specialty coffee industry, people of color are often left out of leadership positions.

"Once you delve into this industry, you'll notice the coffee is only grown in countries, often near the Equator, by black and brown people that make the lowest pay," he said. "Once it's exported from the hard labor, in terms of the roasting, the branding, the technical education, the designing of the equipment — people of color are underrepresented."

As Red Bay expands to more cities, Konte is working to design a comprehensive racial bias training program, which every employee will need to take. Red Bay already requires trainings to combat sexual harassment.

Diverse company leadership can lead to higher profits

While 43% of Starbucks' lower-level workers in the US are racial minorities, the same is not true for employees in positions of real power. Just 18% of the top leadership at Starbucks is nonwhite, according to the company. Starbucks writes on its site that it does have ambitions to make these percentages more balanced moving forward.

"Ultimately, a lot of the in-store dynamics trickle down to baristas from district managers," she said.

Business experts have expressed this same idea. In addition to hiring diverse leadership, Harvard Business School professor David Thomas argues that being able to discuss cultural differences is also important to a company's success.

"The way I look at it is, if our customer base is diverse, we need diversity in our workforce so that we can learn from our own diversity to make ourselves more effective at meeting the needs of our clients," he wrote. "I, as an African-American male, will never be Asian, but if I'm in a diverse work group where we can actually talk about cultural differences, I can become much more effective relating to that Asian client."

It can even help a company's bottom. According to a recent McKinsey study, companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians. Additionally, a 2015 study from the HR research firm Bersin by Deloitte found that companies with gender, racial, and ethnic diversity had 2.3 times higher revenue per employee over a three-year period than non-diverse companies.

After the incident in April at the Philadelphia Starbucks, Red Bay saw its retail and online sales shoot up by 60% and 110%, respectively. While Konte declined to reveal specific sales numbers, he said the company's revenue is continuing to grow.

Companies with diverse leadership are "better reflections of America"

Red Bay's locations sit in two different Oakland neighborhoods. One of the shops is downtown, while the company's headquarters is located in Fruitvale, a semi-industrial district with a large African-American, South East Asian, and Spanish-speaking immigrant population. Sitting next to train tracks and a few factories, the location serves as a retail store, roastery, and event space.

Dishon Levexier, a barista at Red Bay Coffee Roastery. Red Bay Coffee

Konte says it's valuable for companies to have teams that are as diverse as the communities they serve.

"I think that is the bare minimum of what any company should do. Once you get larger, this is more difficult," he said. "But [American] companies should reflect the globe or at least the US. And when I say 'reflect,' I don't mean just on the front lines — like the entry-level baristas — but also the executive team and middle management. That's the part that has to be a better reflection of America."

Red Bay's diversity has also led to more interesting coffee concoctions that appeal to a wider demographic, Konte said. At a recent cupping event, one black employee had the idea to create a candied yam latte. (Sweet yam recipes have origins in West Africa and Peru as early as the 16th century.)

"The candied yam is traditionally an African-American dish that no meal is without during the holidays — It's a soul-food staple," Konte said, adding, " You could contrast that to a spiced pumpkin latte."